Income Tax Treatment Of Development And Exploration

THE Federal income tax treatment of expenditures for exploration and development for mines and other natural deposits (other than oil and gas) was materially changed by special provisions of the 1951 Act that are continued in the present 1954 Code." These present provisions for mines in stance they are the same as the 1951 amendments to the 1939 Code, Secs. 23 (cc) and (ff), respectively, except that for exploration the allowable annual deduction is increased to $100,000 (from $75,000) and minor changes in case of property transfers are made with respect to the four-year limitation. Before 1951 the statutes made no specific pro- visions regarding development and exploration for mines, but the rules were prescribed by Treasury regulations: 1) Before the mine entered the production stage, all development and exploration expenditures for mines, less net receipts, were to be capitalized recoverable through depletion or written off as losses when determined worthless. 2) After a mine entered the production stage, development expenditures were deductible as expenses-currently if ordinary expenses, but on a deferred basis if extraordinary in scope. This recognized the two separate periods, one before and the other after beginning of the production stage. There was no distinction between an exploration and a development period, but exploration was included as part of development.